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You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and
You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and document your choices ( 0 points): - confidence level (restrictions: the confidence level needs to be larger than 50% and smaller than 95\%; it must not have any further decimal places (Nachkommastellen)); - holding period in full calendar weeks (larger than zero); - correlation between the returns of both stocks (restriction: the correlation needs to be larger than 0.3 and smaller than 0.7). (b) You want to invest a total of 200,000 in both stocks. Decide how many percent of that investment you want to spend on each stock (restrictions: you need to spend the entire amount; each stock has to receive a minimum investment of 1\%). (0.5 points) (c) Please calculate the VaR of your investment. (8.5 points) (d) Depending on your parameter choices, your VaR may be larger than 200,000. Please briefly discuss the validity of such a result. How would you deal with such a result? (2 points) (e) Please go back to your correlation coefficient. Imagine that the covariance between both stocks was 0.00024. Is your choice for the correlation coefficient still appropriate? Provide both a non-numerical and a numerical argument. ( 2 points) You are interested in an investment consisting of the following two stocks: (a) For the purposes of VaR calculation please choose the following parameters and document your choices ( 0 points): - confidence level (restrictions: the confidence level needs to be larger than 50% and smaller than 95\%; it must not have any further decimal places (Nachkommastellen)); - holding period in full calendar weeks (larger than zero); - correlation between the returns of both stocks (restriction: the correlation needs to be larger than 0.3 and smaller than 0.7). (b) You want to invest a total of 200,000 in both stocks. Decide how many percent of that investment you want to spend on each stock (restrictions: you need to spend the entire amount; each stock has to receive a minimum investment of 1\%). (0.5 points) (c) Please calculate the VaR of your investment. (8.5 points) (d) Depending on your parameter choices, your VaR may be larger than 200,000. Please briefly discuss the validity of such a result. How would you deal with such a result? (2 points) (e) Please go back to your correlation coefficient. Imagine that the covariance between both stocks was 0.00024. Is your choice for the correlation coefficient still appropriate? Provide both a non-numerical and a numerical argument. ( 2 points)
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